The market is still
facing incredibly strong headwinds coming from several different
directions, starting with a strong dollar. Depending on you source,
S&P 500 companies get between 40%-55% of their earnings from
overseas trade. Even at the low end of the exposure spectrum, (40%),
we’ve still got some pretty major headwinds on the currency front. And,
on that topic, international markets are weak; Japan is coming out of a
technical recession, Australia has some underlying issues, Canada has
to deal with weak oil prices, China is clearly slowing and the EU is
limping along. Tying these two elements together, profits from weaker
overseas economies have to be converted into a strengthening currency,
creating a negative double-whammy. And then there is the negative
impact of oil, as that is destroying the earnings of an entire economic
sector. The sum total of these events is to put a tremendous amount of
downward pressure on the markets.

But, as was
shown last week, the US economy is in good shape, providing a solid
backdrop for continued earnings growth. Last week, that was strong
enough to overcome bearish sentiment. But in this environment, it's
certainly no guarantee that we'll see continued upward price movement.

Two economies – Australia and Canada – have
recently seen a drop in rates, caused by an overall weakness in their
respective economies. Neither are heading toward a recession, but both
are clearly suffering from a certain level of malaise. Both are also
dependent on raw material exports, meaning the drop in commodity prices
is seriously harming both. Japan may be making a slight comeback – at
least based on this week’s numbers – but they are hardly out of the
deflationary woods yet. The US and the UK are both showing some really
strong results. And, the EU is also showing some signs of life.
Germany is still growing and Spain is really starting to come alive.
France is slowing, but their numbers have been just barely negative.
Overall, it could be argued that we’re beginning to see positive signs
from the EU QE announcement, but we certainly don’t have enough data to
make a definitive call.

Friday, February 6, 2015

- by New Deal democrat
Among all of the strong data in today's jobs report, probably the most significant on both the upside and the downside were wages.

First, the ecstasy. Here is real, inflation-adjusted earnings for production and nonsupervisory personnel (thus taking out the top 10% or so of wage earners) for the last 10 years:

Note this only goes through December, since January inflation hasn't been reported. December set a new high, exceeding by less than $.01 the previous high in 2010.

Here's the longer term view:

Real average wages are now higher than they have been at any time since late 1979.

But here's the agony. This is the YoY% change in nominal, (i.e., actual) wages:

Not only is there no sign whatsoever of any wage pressures, but YoY% growth in nominal wages has actually decreased. This is an actual bad sign. With the unemployment rate under 6%, nominal wages growth should be increasing, not decreasing. Instead, all of the real growth in wages is coming from the collapse in the price of gasoline.

Not in Labor Force, but Want a Job Now: down 87,000 from 6.445 million to 6.358

Part time for economic reasons: up 20,000 from 6.790 million to 2.810

Employment/population ratio ages 25-54: up 0.2% to 77.2%

Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.07 (or 0.3%) from $20.73 to $20.80, up 2.0%YoY. In real, inflation-adjusted terms, with revisions December's number was a 35 year high, and unless inflation was more than +0.2% in January, which is unlikely, January probably made another 35 year high.

November was revised upward by 65,000 from 358,000 to 423,000, and December was revised from 252,000 to 329,000. The net revision was +147,000.Since the economic expansion is well established, in recent months my focus has shifted to wages and the chronic heightened unemployment. The headline numbers for January show a surge in employment over the last few months, and also rebounded off of the decrease in wages from December.Those who want a job now, but weren't even counted in the workforce were 4.3 million at the height of the tech boom, and were at 7.0 million a couple of years ago. Since Congress cut off extended unemployment benefits over one year ago, they have risen to 600,000 higher November 2013 post recession low of 5.6 million.On the other hand, the participation rate in the prime working age group has come back almost half from its post-recession low towards its pre-recession high.After inflation, real hourly wages for nonsupervisory employees from December to January probably rose by +0.4% or more, in part because because lower gas prices will again show deflation. The nominal YoY% change in average hourly earnings is +1.9%.The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mixed by with a positive bias.

the average manufacturing workweek rose 0.1to 41.0 hours. This is one of the 10 components of the LEI, and will be a positive.

Professional and business employment (generally higher-paying jobs) up 39,000 and is up 715,000 YoY.

temporary jobs - a leading indicator for jobs overall - decreased by -4,100.

the number of people unemployed for 5 weeks or less - a better leading indicator than initial jobless claims - increased by 25,000 to 2,318,000, compared with December 2013's low of 2,255,000.

Other important coincident indicators help us paint a more complete picture of the present:

Overtime declined by 0.1 hour to 3.5 hours

the index of aggregate hours worked in the economy rose 0.2 from 102.7 to 102.9.

The broad U-6 unemployment rate, that includes discouraged workers increased from 11.2% to 11.3%

the index of aggregate payrolls rose by 0.7% to 121.5.

Other news included:

the alternate jobs number contained in the more volatile household survey increased by 759,000 jobs. This represents a 2,994,000 million increase in jobs YoY vs. 3,207,000 in the establishment survey.

Government jobs decreased by -10,000.

the overall employment to population ratio for all ages 16 and above rose 0.1% from 59.2% to 59.3%, and has risen by +0.5% YoY. The labor force participation rate rose 0.1% from 62.5% to 67.2%, but is down -0.1% YoY (remember, this includes droves of retiring Boomers).

SUMMARY:

This was pretty close to a blowout report, particularly with the upward revisions to the prior 2 months. For the last three months we are averaging over 300,000 jobs per month. The employment to population ratio in the prime working age group has risen significantly for the second month in a row, and has now made up almost half of its recession decline. Most of the internals, including the leading internals, were positive. Wages rebounded, completely taking back their December decline and then a little. There is a reasonable chance that, in real terms, the average real wages for nonsupervisory employees made a 35 year high.

The relative negative still remains wages. Nominal wage growth isn't accelerating at all. All of the real wage growth is coming from a decline in inflation due to gas prices.

Thursday, February 5, 2015

On Monday personal income and spending for December were reported, with the most noteworthy monthly news being that it confirmed the prior retail sales report that consumers primarily saved rather than spent their gas price savings (although December was higher than every other month except November).

Secondly, real personal income finally rose above the December 2012 spike (just prior to the "fiscal cliff") to set a new record:

Now let's adjust by population (blue) and by the civilian labor force (red), on an annual basis:

Whether we adjust by population as a whole, or by just the labor force, per capita real personal income has generally grown throughout the last 20 years.

Although it is not nearly as broad a measure as the Bureau of Economic Statistics' "personal income" metric, another way in which per capita income might be looked at is as real per capita adjusted gross income, i.e., the income reported to the IRS on tax forms.

While this is not kept graphically by either the IRS or the St. Louis FRED, I have created the following table showing real adjusted gross income from 1993 through 2011 (the last year available at the IRS site), adjusted per capita both by population, and by the size of the civilian labor force (+those not in the labor force but who want a job now). The second measure is not perfect, but does make a reasonable approximation of taking into account the wave of Boomer retirements (all figures in $Trillions):

Year

Pop adjusted

CLF adjusted

Year

Pop adjusted

CLF adjusted

1993

4.813

4.356

2001

6.008

6.014

1994

4.864

4.486

2002

5.682

5.699

1995

5.015

4.726

2003

5.676

5.680

1996

5.214

5.010

2004

5.950

5.974

1997

5.520

5.534

2005

6.231

6.345

1998

5.854

5.721

2006

6.528

6.495

1999

6.123

6.048

2007

6.708

6.685

2000

6.365

6.365

2008

6.322

6.295

avg 1993-2000

5.471

5.258

avg 2001-08

6.138

6.148

2009

5.628

5.625

2013

6.103

6.420

2010

5.824

5.887

2011

5.823

5.911

2012

6.194

6.388

avg 2006-13

6.141

6.213

As with other measures, I suspect that shifting income forward from 2013 to 2012 due to concerns about tax law changes at the time of the "fiscal cliff" largely explains the decline shown in the IRS data in 2013 from 2012. Since part-timers as well as full-timers are included in the number of people who reported wages and salaries, I also suspect that the big increase in the percentage of part-time workers beginning with the onset of the Great Recession is largely responsible for why the result for years 2009-13 is almost uniformly lower than that of years 2004-08.

Since the IRS separately breaks out the reporting of wages and salaries, another interesting way to slicing their data is to divide the total amount of wages and salaries reported, divide by the number of returns, and then adjust for inflation. The resulting figure gives us the average real wage or salary of all persons reported to the IRS.

In theory this should be identical or nearly identical to the BLS's "aggregate wages paid" index from the monthly jobs report, adjusted for inflation. Aggregate wage information is only available on the St. Louis FRED site from 2007 on, but here's what that looks like:

Tuesday, February 3, 2015

- by New Deal democrat
Something that hasn't gotten much attention from last Friday's GDP report is the brisk increase in real median wages during the 4th quarter of last year.

While the monthly jobs report gives us average wages, median wages aren't reported monthly. There are several quarterly measures, including usual weekly earnings (which will be the subject of a separate post), and the Employment Cost Index, which is reported as part of GDP.

Here is the quarterly % change in the ECI for wages since the inception of the series in 2001:

In the 4th quarter, we had nearly a 1% increase, the best showing since the last time gas prices plummeted in late 2008. The other two times the ECI grew by 0.5%+ in a quarter, in 2001 and 2006, also coincided with substantial declines in the price of gas.

What is perhaps most noteworthy is that median wages grew more than average wages during the fourth quarter. Here's a graph comparing average wages on a quarterly basis, with median wages from the ECI, normed to be equal at the end of the Great Recession:

As a result, median wages are now also within 0.5% of their highs. Average wages are only 0.2% below their 35 year high.

Sunday, February 1, 2015

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